Investors look to REITs to boost returns

June 1, 2007

Interest in international real estate is increasing because, as is often the case with investors, it recently has done very well from a performance standpoint.

Key Points

Q Given the rise in real estate prices in the United States, does it make sense to include international real estate in one's portfolio?

A Investors who have reaped, or at least witnessed, the financial rewards of investing in the unique asset class of real estate through real estate investment trusts (REITs) or mutual funds are now looking abroad for further growth opportunities. Interest in international real estate is increasing because, as is often the case with investors, it recently has done very well from a performance standpoint. As evidenced by the popularity of buying international stocks and bonds, investors are more than willing, even eager, to invest abroad in an effort to enhance their portfolios' returns.

An alternative to direct ownership in REIT shares would investing in mutual funds that invest in REITs and other real estate-focused stocks. Mutual funds pool the resources of many individuals and offer the individual investor access to a diversified portfolio of professionally managed REIT securities. There are now many publicly traded mutual funds that specialize in REITs, both domestically and with a global orientation.

Keep in mind that while the international real estate market continues to grow, investors should consider certain concerns prior to investing. It is still a relatively new investment, especially in the form of mutual funds; thus, the fund managers have track records that generally incorporate a short performance history. Additionally, as with other foreign investments, there are situations unique to certain countries that can negatively influence returns, such as Japan's recession, which lasted over a decade, the SARS outbreak in China, and various levels of political conflict.

It is important to keep in mind that investing in publicly traded REITs, whether through direct ownership or a mutual fund, carries certain market risks (see disclaimer, page 31). Investors who sell shares at any given time may receive more or less than their original investment. Some of the factors that can influence market risk include the general level of real estate values, REIT dividend payouts, management skill, and broad stock market trends.

Q I'm confused about the new changes that affect retirement plans. Specifically, how often do I have to provide plan updates to my employees? I also understand that there is now a way to help employees with their retirement investment options. How does this work?